HOW LOW CAN THEY GO?
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|Interest rates hit an all-time low on June 1, when the 10-year Treasury reached 1.48%. What does a limbo contest mean for CRE? NorthMarq's Warren Hitchcock (with colleague Kerry French, both in the Houston office) tells us deals are coming in with 10-year debt at 3.5% all in, causing borrowers to take as much money as they can (even historically all-cash developers). It's also driving investors to CRE in search of yield, bringing CMBS back at aggressive rates. Warren says it all means potential for owners to cash out and reinvest elsewhere.|
|Rates haven?t been near this low since 1945, when they bottomed at 1.54%. Warren says the low interest rates owe largely to pricing in fear (eurozone, slow economic growth, election, etc). Kerry says there could be a downside: Record interest rates that come from artificial manipulation usually have unintended consequences (and if you've seen Prometheus, you know how "artificial manipulation" can backfire). In the meantime, rates could go even lower. Goldman, which had projected rates to increase to 3.25% by year's end, now expects them no higher than 2.5%. JPMorgan estimates that Treasury yields will drop to 1.40%.|